FMC Corp (FMC) — Q3 2020 Earnings Call Transcript

Thank you and good morning, everyone. Welcome to FMC Corporation's third quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our third quarter performance followed by a review of our business in Asia and the outlook for the rest of the year. Andrew will provide an overview of select financial results. Following the prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website and the prepared remarks from today's discussion will be made available after the call. Let me remind you that today's presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to those factors identified in our earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding. Actual results may vary based upon these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow, and organic revenue growth, all of which are non-GAAP financial measures. Please note that as used in today's discussion, earning means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website. With that, I will now turn the call over to Mark.

Thank you, Michael, and good morning everyone. The third quarter was an exceptional quarter for our company. Even in the face of persistent challenges posed by COVID-19 and severe headwinds from foreign currencies, we grew our revenue by 15% organically, EBITDA by 20%, and EPS by 30%. This performance highlights our portfolio strength, balanced geographic and crop exposure, as well as a sharp focus on execution and cost. On the latter point, as we progressed through the quarter, we saw the Brazilian season was getting off to a very slow start due to hot, dry weather, which in turn made it difficult to get the pricing we had planned to offset the FX headwinds. To counter this situation, we aggressively managed costs in the quarter and were able to achieve the strong overall performance. Let me now turn to the impact of the COVID-19 pandemic on our business. As we said last quarter, all our manufacturing facilities and distribution warehouses remain operational and fully staffed. The majority of FMC’s other employees continue working from home, but some have returned to certain offices and laboratories where permitted by local authorities. We have had zero COVID-19 transmissions in our facilities and continue using a variety of best practices to address risks. While we saw very strong demand for our products in all four regions of the world in the quarter, there were pockets of demand reduction related to the pandemic. This impacted certain cotton and fruit and vegetable markets. We expect this level of localized disruption to continue in the fourth quarter and potentially into 2021. Following the outperformance in Q3 with our outlook for Q4, we are raising the midpoint of our EBITDA, EPS, and free cash flow guidance and tighten these ranges. Underlying demand for our products remains healthy, supplemented by market access expansion, new registrations, and an increasing impact from our pricing actions as we enter Q4. Turning to our Q3 results on Slide 3, we reported nearly $1.1 billion in third quarter revenue, which reflects a 7% increase on a reported basis and 15% organic growth. After removing the FX impact, our business saw double-digit growth in India, Australia, Pakistan, Brazil, Germany, Italy, and Canada. Adjusted EBITDA was $263 million, an increase of 20% compared to the prior year period. EBITDA margins were 24.2%, an increase of 260 basis points compared to the prior year, driven primarily by cost control measures. Adjusted EPS was $1.22 in the quarter, an increase of 30% versus Q3 2019. This year-over-year performance was driven mostly by the increase in EBITDA, while much smaller impacts from D&A, interest expense, tax rate, non-controlling interest, and share count largely offset each other. Similarly, relative to our Q3 guidance, the $0.12 beat was driven almost entirely by our $18 million EBITDA outperformance versus the midpoint. Moving now to Slide 4, Q3 revenue increased by 7% versus the prior year, despite an 8% FX headwind as higher volumes contributed 12% to growth and pricing contributed another 3%. In Asia, revenue increased 16% year-over-year and 19% excluding FX, partially due to favorable weather conditions in both India and Australia. Sales in India grew over 20% organically as the good monsoon drove demand from growers of rice, soybeans, pulses, sugarcane, and fruit and vegetables in the south and central markets. Herbicide sales in Australia were up over 50%, led by cereals and canola. Pakistan also grew in double digits, driven primarily by insecticides in rice and corn. In North America, sales increased 8% year-over-year, driven by increased planted areas in soybeans, corn, and rice, as well as continued market expansion of our fungicide Lucento and Rhyme. Sales in Canada were robust, driven by cereal herbicide blends from our patented PrecisionPac technology as well as insecticides. We broke a record in Canada this year for acres using PrecisionPac products. Elevest, the formulation based on Rynaxypyr insect control and bifenthrin is doing very well in its first launch year. Heading into the winter, our U.S. channel inventories are in a better position compared to a year ago, which should lead to good restocking later in the fourth quarter. Sales in EMEA increased 10% year-over-year, and there was no FX impact. We saw strong demand for Rynaxypyr insect control applications for specialty crops, as well as Battle Delta herbicide for cereals, particularly in France and Germany. Latin America sales grew 1% year-over-year and 18% excluding FX. Grower sentiment is strong, but the season started very slowly due to hot and dry weather in Brazil, Argentina, and Paraguay. Pricing actions across the region offset some of the currency headwind, although we expect pricing to have a larger positive impact in Q4 than it did in Q3. In Brazil, sales grew double digits organically, led by our growth in the soybean market. Due to the late start in Brazil, channel inventories are higher than normal for this point of the year for us and the industry. We fully expect this will be worked down as planting catches up now that the rains have returned. Mexico sales grew organically, but were still impacted somewhat by COVID-19 related pressures on the growers that export fruit and vegetables. Sales in the Andean zone grew significantly as conditions in that submarket improved. Turning now to the third quarter EBITDA bridge on Slide 7. We had very strong operational performance and a $70 million contribution from volume, a $34 million contribution from lower costs, and a $26 million benefit from higher pricing, more than offsetting an $86 million FX headwind. The volume contribution was double what we had forecast, partially due to the robust market growth in India and Australia. In addition, stronger than anticipated volume growth in Brazil was also a key driver. However, this did drive an increase in the FX headwind in the quarter. We had significant cost savings in the quarter, well above guidance given on our last call. Approximately $8 million of the $34 million cost savings you see on this bridge are costs that were delayed into Q4. We had excellent cost discipline, including additional accelerated SAP synergies. Taking a step back now, we'll turn to Slide 6. As we did for Latin America last year, I'm going to highlight a region where we are seeing significant growth. Asia may be the most diverse of our four regions and therefore it is the most complicated to understand. We are currently the fourth largest crop protection chemical provider in the region, with sales of around $1.1 billion in a $16 billion market for about a 7% market share. This region is the most seasonally balanced of the four mainly because it has significant markets in both the northern and southern hemispheres. We've managed the Asia business in five sub-regions with India and North Asia significantly larger than the other three, but we do have aggressive goals to grow in all of them. Not surprisingly, rice makes up about 35% of our sales in the region. In addition, fruits and vegetables are a large and diverse set of crops spread across all countries. Our crop diversity in Asia provides numerous opportunities to grow, and it also mitigates the risk of our results being overly impacted by a poor season in any single crop. Similarly, our geographic mix in the region is also very diverse. Moving to Slide 7 for a look at how our Asia business has expanded since 2014. We have made two large acquisitions since then, Cheminova in 2015 and the DuPont Crop Protection business in 2017. Through these acquisitions, we added a large active ingredient manufacturing plant in India and two active ingredient manufacturing plants in China, along with several formulation plants, R&D labs, and field trial sites across the region. Total sales were about $350 million in 2014 while this year we expect to be about $1.1 billion. This is in part due to a fundamental restructuring of our India business which we implemented in 2018 that enabled increased market penetration and efficiencies that improved profitability significantly. I will walk through some of the sub-region highlights to provide color on the crop diversity, country exposure, and recent commercial activities we have in the region. The five sub-regions include Australia and New Zealand, Southwest Asia, North Asia, ASEAN, and India. In the Australia and New Zealand sub-region, our annual revenue is about $100 million to $130 million in a $2 billion market. Our market access model is via large distribution of retail companies supported by our own sales groups. Australia is predominantly a cereals market. We are therefore very excited to be preparing for our launch of IsoFlex Overwatch Herbicide in 2021 crop season. Earlier this year we began engaging retailers with a large-scale demonstration plot program. IsoFlex is a new mode of action in cereals and it delivers high performance on leads that are developing resistance to other herbicides in the marketplace. The Southwest Asia sub-region encompassing Pakistan, Bangladesh, Sri Lanka, and Myanmar is the smallest market of the five. But our annual revenue of approximately $110 million to $140 million equates to a market share of approximately 30%. In Pakistan, we have a unique market access model comprised of FMC owned retail outlets selling our full range of products. This model has facilitated our growth to be the market leader. We see rapid Rynaxypyr insect control expansions for sugarcane and corn applications. Moving to the North Asia sub-region, which includes China, Japan, Korea, and Taiwan, we have annual revenue of approximately $290 million to $320 million in a $9 billion market. In Korea we successfully launched Accudo biostimulants in 2019 for use in fruits and vegetables, and we are preparing to launch two new microbial biopesticides later this year. In Japan, we are seeing strong demand for diamides, particularly in the rice nursery box segment. In China, the market is highly fragmented. Our business is focused on rice and fruits and vegetables. Due to customer fragmentation, we go to market via local distribution and retail companies. The ASEAN sub-region includes Indonesia, the Philippines, Thailand, Vietnam, Cambodia, Malaysia, and Singapore. In all these countries, we work through local distribution and retail companies. This is especially important in the large Indonesian market, given its fragmented geographical nature. In 2020, we also expanded our market access to additional parts of Indonesia, similar to what we have done in India. In this sub-region, we have an annual revenue of about $110 million to $140 million in a $2 billion market. We see stronger Rynaxypyr insect control sales for rice, as well as growth of Cytrapyr on fruits and vegetables driven by little extensions. Moving finally to the India sub-region, which generates approximately $370 million to $400 million in annual revenue for us. On Slide 8, we take a deeper dive into this $3 billion market, which has significant structural opportunities for agricultural growth. To start, it has more arable land than any other country in the world. In fact, India has 30% more arable land than China and nearly twice as much as Brazil. This presents incredible growth opportunities for FMC with our very strong footprint and market penetration. You can see in the center of the slide that yields are very low in India, driven by low usage of crop inputs. On rice, for example, India's yield per acre is half of that of Brazil and less than a third of the yield in China. On corn, India's yield is half of that of Brazil and less than 20% of the yield seen in the U.S. The market is dominated by small growers who do not have the scale to mechanize their operations. That being said, there are meaningful growth opportunities as these small growers recognize the benefits of investing more in crop inputs. Moving to Slide 9, India today is about a $3 billion market for crop protection, and we see market growth of 6% through 2025, taking the market to nearly $4 billion by that time. Insecticides make up about 45% of the market today, with herbicides and fungicides about 20% each and plant health biologicals making up the remaining 15%. As you can see on the right side of this slide, the crop mix is similar to that of the Asia region with rice and fruit and vegetables making up nearly 60% of the market. In a market that is highly fragmented by both geography and a multitude of crops there are, as we said, significant opportunities to grow. In India, we have a unique market access model. We have exclusive distribution with five major companies that are supported by sales and marketing resources to drive geographical and portfolio growth. This model is currently under expansion as we look to service all of the Indian market. FMC has developed commercial initiatives in India to expand our market share. This includes crop and geographic expansion of our diamide brands such as Coragen and Ferterra, as well as eight new herbicide and fungicide launches since 2018 that are expected to drive sales of $70 million by 2023. And with that, I'll now turn the call over to Andrew.

Thanks, Mark. Let me start this morning with a few highlights from the income statement. FX was a larger than anticipated headwind to revenue growth in Q3 at 8% versus our expectations of a 6% headwind. The Brazilian Real was the vast majority of this headwind, followed by the Indian rupee, Argentinean peso, Pakistan rupee, and Turkish lira. We took substantial pricing actions and were able to recover about one third of the FX headwind in the quarter. We continue to expect FX headwinds to remain at an elevated level throughout 2020, with pricing covering about half of the FX headwinds and revenue in the year. Interest expense for the third quarter was $35.5 million, down $6.1 million from the prior year period, benefiting from lower term loan balance outstanding, lower LIBOR rates, and lower foreign debt balances. These are partially offset by higher bonds outstanding following the debt offering we completed in the prior year quarter. We now anticipate interest expense between $150 million and $155 million for the full year. Our effective tax rate on adjusted earnings for the third quarter was 13.5%. We now expect our full year tax rate to be in the range of 13% to 14%, with the midpoint consistent with the tax rate through the first three quarters of the year. Moving next to the balance sheet and liquidity. Growth at quarter end was $3.2 billion down $300 million from the prior quarter, with strong free cash flow leading to lower short-term financing gains. We continue to carry some excess cash due to heightened uncertainty caused by the COVID pandemic. Gross debt for the trailing 12 month EBITDA was 2.5 times at the end of the third quarter or 2.4 times if you consider the nearly $175 million of surplus cash on the balance sheet. This is consistent with our targeted annual average leverage of 2.5 times or less. Moving on to Slide 10 to cover cash flow and cash deployment. Free cash flow for the third quarter was $315 million, up more than 50% from the prior year period. Adjusted cash from operations was up $75 million, with growth in trade working capital more than offset by higher EBITDA, lower changes in other assets and liabilities, and lower cash interest. Collections continued to be strong in the quarter, surpassing our expectations. Capital additions were down $27 million consistent with our updated expectations for full year investment. Legacy and transformation spending was down $15 million due to timing of expenses and the ramp down of our transformation efforts. For the nine months ended September 30th, free cash flow of $148 million is nearly $230 million higher than the prior year period. Change in other assets and liabilities, lower cash interest and taxes, lower capital investment, as well as growth in EBITDA above growth in trade working capital all contributed to the year-on-year improvement. As we look to year end we are raising our full year free cash flow guidance to a range of $475 million to $525 million, an increase of nearly $200 million at the midpoint versus the prior year period. We anticipate deploying more than $170 million of free cash flow in the fourth quarter. We paid $57 million in dividends on October 15th, plus the $65 million acquisition of the remaining rights to the fungicide Fluindapyr in early October and expect to repurchase $50 million of FMC shares. We resumed share repurchases at the beginning of October and have completed $20 million of repurchases today. By year end we will have deployed nearly $350 million of free cash flow while maintaining excess liquidity throughout the pandemic. This includes the $115 million being deployed in Q4 on the acquisition and share repurchases, as well as the nearly $230 million that will be returned to shareholders this year via dividend. Moving next to slide 11. FMC is making good progress in both improving our free cash flow conversion from earnings, as well as growing the absolute amount of free cash flow we generate. As you can see on the left-hand side of this slide, at the midpoint of our increased guidance range we now expect to improve cash conversion by 21 percentage points compared to last year, while growing cash flow by nearly $200 million. We continue to believe that we have substantial headroom to improve further on both free cash conversion and the absolute free cash flow we generate, particularly as we complete our SAP implementation and in the period of high cash spending on transformation efforts this year. On the right-hand side of this page, you can also see the breakdown of free cash flow generation by semester for the last year and this year. Note that the seasonality is similar in both years with negative free cash flow in the first half of the year and strongly positive free cash flow in the second half. Finally, a quick update on progress in implementing our new SAP system. Our final Go Live is underway as we speak with the remaining 40% of FMC moving on to the new system this month. Following this Go Live we will have a single modern system across the entire company for the first time in our history, which will enable significant efficiencies in our back office processes. As we prepared for this final Go Live, we've accelerated more synergies that were planned for 2021 into 2020. We continue to expect total savings of $60 million to $80 million from implementing the new system, but we now expect to capture $50 million in synergies in 2020 with the remaining $10 million to $30 million to be achieved largely in 2021. And with that, I'll turn the call back over to Mark.

Thank you Andrew. Turning now to overall market conditions. With only a couple of months left to go in 2020, we continue to expect the global crop protection market will be flat to down slightly on a U.S. dollar basis although our view on the regions has changed slightly. The outlook for Europe continues to worsen following a hot, dry summer, and we now believe that market will be down low single digits year-over-year, that is flat in our prior forecast. Offsetting this, we expect the Asian market to be up low single digits versus our prior forecasts have been down slightly due to much better weather conditions in India, Australia, and ASEAN. Our forecast for Latin America and North American markets are unchanged, a down to low mid-single digits and up low single digits respectively. All these forecasts are for the market not FMC and are in U.S. dollars. Moving to Slide 12 and the review of FMC full year 2020 and Q4 earnings outlook. As I said earlier, we are raising our guidance for the full year. We are still facing significant FX headwinds and impacts on both cost and demand from the global pandemic. But the underlying demand for our products and our ability to control costs led to our improved outlook. FMC full year 2020 earnings are now expected to be in the range of $6.45 to $6.57 per diluted share, a year-over-year increase of 7% at the midpoint and $0.06 above prior guidance. The $50 million in share repurchases planned for the fourth quarter will not impact our full year share count as the buybacks are too late in the year to alter the math for the EPS calculation. 2020 revenue is forecasted to be in the range of $4.72 billion to $4.78 billion, an increase of 3% at the midpoint versus 2019 and 9% organic growth. We believe the strength of our portfolio will allow us to deliver high single-digit organic growth, continuing a multiyear trend of above market performance. EBITDA is now expected to be in the range of $1.295 billion to $1.315 billion, which represents a 7% year-over-year growth at the midpoint. Guidance for Q4 implies a year-over-year sales growth of 5% at the midpoint on a reported basis and 10% organically led by continued strength in Asia in addition to the global strength of our diamides business. We are forecasting EBITDA growth of 8% year-over-year at the midpoint. EPS growth is forecasted to be flat year-over-year, limited by the large positive tax adjustment in Q4 2019. Turning to Slide 13 and full year EBITDA and revenue drivers. Revenue is expected to benefit from 6% volume growth with the largest growth in Asia and Latin America and a 3% contribution from higher prices. FX is forecasted to be a 6% top-line headwind. We have raised our EBITDA guidance by 10 million at the midpoint reflecting the outperformance in Q3 while recognizing the delay of $8 million of costs into Q4. We now expect a higher contribution from volume growth and we are also generating higher cost savings as well as earlier realization of some SAP synergies. We now forecast an FX headwind of $247 million for the full year versus $230 million in our prior forecast. On an EBITDA basis, we now expect pricing to cover over 55% of the FX impact of the year and pricing will come from all regions led by Latin America. Moving to Slide 14, where you see the Q4 drivers. On the revenue line, pricing and volume are expected to drive top-line strength and regarding EBITDA drivers pricing will have a larger impact in Q4 than it did in Q3. To wrap up, we executed very well in the quarter, both from an external perspective in driving demand across all regions, but also importantly internally by focusing on cost control and delivering critical activities that will drive our future performance. This includes preparing our Go Live of SAP, continuing to drive our R&D pipeline forward, and keeping priority capital projects on track. Q4 is an important quarter for cash and we are focused on cash generation as well as demand generation. We remain confident in our ability to drive above market performance once again. With that, I'll now turn the call back to the operator for questions.

Great, thank you very much. So on free cash flow conversion front, there's still a few moving parts but they're definitely in the right direction. Just given your more stringent definition, can you just give us an update on some of the key initiatives you're mentioning, as well as some low hanging fruit which still exists for 2021 and even 2022, just anything that could further assist us in the pathway to over 80% conversion eventually? Thank you.

Sure, yeah. Let me just give a couple of high-level comments before I jump in on the details. One of the reasons you're seeing us move our free cash flow conversion and ultimately the dollars is the focus we've placed on cash as an organization. I think it's important to note that all the executives and senior managers now have a free cash flow component in the long-term incentive rewards for the company. I do believe that this has helped change our view of free cash flow and how we go about delivering that for the company. So that's an important backdrop for everybody on the call of how you think about us driving not only earnings but also free cash flow. Andrew, you want to talk about a couple of the drivers there?

Certainly. Thank you, Mark. This year has shown strong cash flow for both the quarter and year-to-date, and that strong focus Mark mentioned is evident in how we've managed the growth of working capital. We have also benefited from the deferral of cash tax items under the CARES Act and lower cash interest due to refinancing and lower rates. From a broader perspective on free cash flow, as Chris mentioned, we're discussing the cash available for dividends, share buybacks, or small acquisitions like the Fluindapyr fungicide acquisition we completed in October. All other expenses, including legacy liabilities and investments necessary for business growth, are included in that figure. We are working towards maximizing the free cash flow that can be utilized. For 2021, we plan to leverage the new SAP system, which will provide better tools and visibility into working capital and lead to continued improvement in that area. We are investing over $100 million this year to complete the SAP implementation and finalize our transformation following the DuPont acquisition. This investment will positively impact cash flow going into 2021. While capital expenditures are lower this year, we anticipate an increase next year. The legacy component should remain stable, and the rest will depend on our effectiveness in driving organic growth and cash flow. Therefore, we expect to show progress in that direction, aiming for free cash flow conversion in the mid-term to be around 70% to 80%, and potentially higher in the long-term. I don't want to take away from the upcoming Investor Day, where I'll provide more insights.

Thank you very much.

Yes, hi, good morning, Mark and Andrew. You had a big impact of FX in Latin America. There was negative 17%. Can you go back to your hedging strategy? I know that you have an elaborate and well thought out hedging strategy, your hedges orders come in. Can you just kind of describe that, are you trying to hedge revenues, net income, and just talk us through that and what happened in the quarter? Thank you.

Yeah, sure. P.J., I will let Andrew talk about the details of the hedging policy, which we talked about on a couple of calls previously. I do think that overall when you have these types of movements, whether it's short-term volatility or a long-term movement in the currency, price is the most effective weapon for closing that FX gap. I mean, hedging obviously helps. It is important for us to understand what we believe the performance of the company will be, and hedging allows us to do that. It is complicated, make no mistake. But I think we do a pretty good job of managing that exposure, that it really comes down to the commercial groups to manage the price lists and how they move price in any one jurisdiction. Andrew, do you want to talk about the hedging policy?

Sure. Thanks, Mark. I think that our hedging policy, our hedging program is all designed around increasing the probability of being able to deliver against our guidance and just the expectations that we set. There's no hedging program that can protect you fully from year-on-year changes in currency at any kind of economic basis. So we're not trying to go to zero FX impact, we're trying to maintain an FX impact within a range that we can manage through the rest of the P&L, through the pricing actions and businesses we have. Our hedging approach has been pretty well in place for several years now as we start from anticipation of sales through entering into commercial terms with customers, through the time we actually issue an invoice and create a receivable and allow the specific tools and levels that we hedge out and each part of that life cycle. We have a very high coverage all the way up to 100% once we have a receivable on the books. Looking at Q3 specifically, when you look at what we guided coming into the quarter, we expected an EBITDA of about $60 million headwind from FX and ended up being about $86 million headwind from FX. Part of that is, again, no hedging program covers 100% of the movement. There were some movements beyond what we had anticipated. But the real driver was we ended up seeing some opportunities to grab more business and the mix of business in Latin America being more heavily denominated in BRL than what we had forecasted. So with that higher volume of BRL denominated sales, each one of those sales brings with it an increased amount of FX headwinds. So the real delta in the quarter was the impact of higher volumes, and again, I think we're happy with the way the hedge program is performing. Again, it doesn't take all the risk off the table, it never can, but it does help us increase our ability to manage the performance of the company to meet the expectations that we're setting.

Yes, good morning. My question is on pricing in these two parts. The first one maybe could you talk about the I guess same to the point earlier around the bridge, why do you think you came a bit late to this game in some Q3 pricing plus 3 versus plus 6 but more importantly, how do you feel about pricing going into Q4 and 2021 in terms of inventories, especially in the Northern Hemisphere? Thank you.

Yeah, thanks Laurent. Let's take the first one. First, the Q3 pricing. I said it in the script and we certainly saw this, as we rolled through Q3 into Q4, the Brazilian market was extremely stressed. We probably think that market was delayed by about 30 days in terms of planting. It was just so hot and dry, unprecedented weather. That causes all sorts of frictions in the channel, as you can imagine. Our ability to move price to the degree that we thought it was just not as we had planned when we gave guidance in early August. So we responded to that. We had opportunities in the marketplace, especially in the soy complex to go and move volumes, which we did very successfully, but we didn't get as much price. Now, what does that mean going forward? Well, certainly the price lists going forward for Q4, we are at a higher level because that's already been negotiated, so we do have confidence in the price that's going forward. But we covered about 55% of the total impact of FX in the year. It's going to take us through part of next year and all the way into the beginning of the next season in Brazil to recover the rest of that, assuming that FX stays where it is today. You just don't recover those sorts of increases in one season. It is just too much. And you can't expect the grower to absorb that. We will continue in Latin America to push price as we go through this season. Also, we're looking at price and we'll be looking at price in the other regions as they come into their new season in 2021. So expect us to be on this all the way through next year. And then we'll wait and see where we get to in Q3 next year for the 2021-2022 season in Latin America. On the other part of your question, Laurent was channel inventories. I'll give a quick run around the wall because I'm sure other people have that same question in mind. In North America, particularly in the U.S., we feel we're in much better shape than we were a year ago. We were very explicit as we went through this year, the fact that we felt following the very poor year in 2019 in terms of weather that we had more pre-emergent herbicide channel inventory than we would like. That was the case. We've been very diligent in drawing that down this year, and we feel very confident that the levels we're at now are average levels where we can compete from a channel inventory perspective. It should bode very well for a good restocking at the end of this year, getting ready for the U.S. season in Q1. In Europe, I believe channel inventories are high. Not everywhere, but just given the weather conditions, especially in northern Europe, I expect that herbicide, some herbicides, some insecticides, and certainly fungicides will be high in Europe. It's something we're going to have to watch out for as we go into the next season starting in Q1. In Asia, I think India is in good shape. The monsoon was very, very good. So a lot of draw-down of inventories there, not that they were particularly high. ASEAN has improved a lot. Indonesia is looking much better now, more average for us. Australia has really got back on track. Excellent season given the drought we've seen the last two or three years. So Australia's good. I would say more inventory than we would like in China. For those of you that watch the situation, there was significant flooding during this season which did reduce demand. So we think China is a little heavy on inventory. And then moving down to Latin America, obviously Brazil is the major focus there. Right now inventories are high, but that's got nothing to do with how we feel about the market growth. Sentiment is very strong. We expect acreage to increase. Once again, local prices are strong. So the market is very buoyant. It is just purely a delay in the usage of products at this point. Put it in perspective for you, I can tell you we always look at how much we are selling and what the market can take, and we have not sold more than the market can take in Brazil. So we feel very confident that once the pricing really gets going, which is now, the rains have arrived, that Brazil will be in much better shape as we end the season.

That’s it, thank you.

Yes. You did guide in India was very interesting, and it seemed that the Indian government was pretty supportive of Ag. They subsidized crop prices and fertilizers. I was curious to your view as to whether there is any kind of a structural reason why crop chemical use is as low as you highlight. The distributors that you use there, do they provide any agronomic advice similar to what Gingeta is rolling out in China or might you consider expanding your retail network that you have in neighboring Bangladesh or India, is that a possibility?

Yeah, I think you know, Steve, thanks for the question. Listen, I think it is such a fragmented market that that whole complex of offering advice and developing the market itself has been slow to uptake. I think the value of the goods now is getting to a point where the growers see the impetus for improving both the fertilizer usage, crop protection, the seed quality. They're exporting more from that market. So, therefore, there is more of an incentive to invest. We certainly from an agronomic advice given the fact that our four distributor partners plus the sales and marketing force that we have there do give agronomic advice to the growers to help them improve their yields and educate the growers on what is happening. I don't see us going to a model where we have fancy stores in India. There's a difference between the Pakistan market and the Indian market. The Indian market is just so much bigger and more fragmented. We did a lot of business prior to the DuPont acquisition through small retailers, and I can tell you, a lot of people focus on the P&L for the business, but when you're going direct to retailers in places like India, you have to have a large balance sheet to support that. We felt that was not the right way to go. So we took the five-distributor model and expanded it. But I don't see us going to FMC stores in India. I don't think that's the right model for us in that country.

Thank you.

Yes, thanks. Good morning, everyone. I was hoping Mark, Andrew this year’s reflection a little bit year-to-date and what was implied in the guidance is pretty clear across the FMC continuing versus the global crop protection market. Just to get your kind of view on kind of the key drivers and the sustainability, whether it's just product, it's geographic exposure, and of your channel inventory and business units, how you think about your growth versus the market this year and kind of the sustainability of that?

Thank you. I want to highlight a few key points. First, it’s important to consider the geographic and crop balance in our business. With about $5 billion in a $58 billion market, we hold a market share of approximately 9%. This reflects significant opportunities for FMC to grow. We don't require mid-single-digit market growth to achieve our own growth at similar rates. Our expansion is not limited to the diamides but includes a robust pipeline of upcoming products and the variety of crops we serve. This year alone, new product launches are expected to generate around $70 million in revenue, contributing nearly 2% to our growth without factoring in the broader portfolio's expansion. Geographic growth is crucial; we're making strategic moves in regions like India, Indonesia, and select provinces in China. In Brazil, we're exploring ways to enhance market access and increase our share leveraging our quality portfolio. There isn’t a single solution; multiple strategies must be pursued to maintain our market outperformance, and we are confident in our ability to achieve that.

Great, thank you so much.

Thank you. I was hoping we could come back to the pricing question for a moment. You've obviously got a pretty amazing record of offsetting FX costs in Brazil over time. And it doesn't look difficult this time with how strong farmers are. But your discussion of Asia, I was wondering if you could talk a little bit about how pricing is evolving in that market given that so much of that market has a historical bias towards generics, and pricing has been difficult there in the past?

Thank you, Mark. As we discussed the foreign exchange impact, Andrew mentioned that the Brazilian real was a significant factor, but there were several other currencies involved, predominantly from Asia. We have adjusted prices in Asia this year, though not as aggressively as in Brazil due to the market size. However, we are still achieving price increases. Looking at our business today, third-party products, which represent our approach to generics, constitute only about 5% of our overall portfolio. Competing with generics is one aspect, but the real competition lies in the value we provide, which is the benefit growers get from our products, such as pest control that enhances yield or productivity. This value is what growers prioritize. Overall, price trends appear to be improving. While there may be a focus on soy and corn in the U.S. and Brazilian markets, globally, rice prices are stable, sugar prices are reasonable, and fruit and vegetable prices are fluctuating due to changing demand from COVID. Generally, growers in Asia are looking at improved profitability and are thus more inclined to invest in higher-quality inputs that enhance yield and profitability. Our perspective is focused more on this value proposition than on the generic market itself.

So, thank you.

Thank you very much. Good morning, everyone. I would like to return to the discussion about Asia or India. As you consider your growth plan there, how much will it rely on further penetrating your existing products? Will there be a consideration of new products that could be relevant in that market, or is there a potential for mergers and acquisitions in the region that could be beneficial? Or is it a combination of all three? Thank you.

Yes, it's primarily about the first two aspects rather than the last one. We are indeed focusing on geographic and crop expansion in India. The fruit and vegetable markets in the country are quite fragmented. We've previously discussed our registration strategy and how we are enhancing it. India is crucial for us to introduce our products across various crops throughout the country. I won't delve into all the specifics of our pipeline, as I plan to share more in two weeks. However, I can confirm that our pipeline is relevant to India. Additionally, we are observing some agronomic changes that are advantageous for us. For instance, in Brazil, the sugarcane industry is highly mechanized, whereas in India, it isn't due to labor shortages. In Brazil, we are a leading provider of herbicides for the sugarcane sector, and we are now establishing a pre-emergent herbicide business in India, marking a new market. This segment used to rely on manual control but is beginning to adopt pre-emergent herbicides. This is a prime example of a market that has emerged recently, and we can leverage our technology and expertise from Brazil in India. In fact, in recent years, Indian sugarcane growers have traveled to Brazil to observe its agronomic practices. This investment enables us to continue growing our market share and overall market growth.

Thank you. Maybe just to give us a little bit of preview of your technology day. Sounds like they're having good success in the combinations of the diamides, maybe you could comment what percent of that diamide sales are currently in combinations and what would you think that will be a few years from now?

We don't break down our sales into straight versus formulated products, but we are definitely seeing success. We've just launched Elevest and have a few more products set to release this year. While these products may not dominate our sales in this area, as the market evolves and our partners analyze their sales, they will likely offer a variety of products. Our partners may carry a range of these formulated products even if we don't have all of them ourselves. We will certainly have some, as we are developing them, but overall, the market will continue to diversify with more formulated products.

Thank you.

Yeah, good morning folks and an impressive result here in the third quarter. So as I look at your results for this year and the guidance for the fourth quarter, it really looks like things are accelerating in the back half of the year. So that naturally gets my mind thinking about the first half of next year and some of this accelerated growth in your results in the back half of this year, on a run rate basis probably implies a pretty good first half of 2021. Am I thinking about that correctly, how would you handicap kind of the kind of the run rate heading into next year?

You can't necessarily assume that the first half of next year will mirror the second half of this year just based on our growth rates in Q3 and especially in Q4, where Latin America and Asia play a significant role. While the Asia business isn't as large in Q1 or Q2, it's not too far off, but Latin America is much lower in those quarters compared to Q3 and Q4. It's important to approach this carefully, as we don't analyze the business sequentially; instead, we consider seasonality. Yes, we have traction, especially given market growth rates, but we're currently in the midst of our budgeting process. To provide a general view of the market, which I don't have precise internal numbers for yet, it appears that the market this year is down by low single digits, and I expect it to be relatively flat next year. Europe should see improvement if the season is close to normal, and other regions are looking a bit stronger, with Latin America showing some positive signs, which I also expect for Asia. The U.S. market should perform better next year if soft commodity prices remain steady, as China continues to make purchases. Our long-term plan targets a top-line growth of 5% to 7%, and currently, we are right in the middle of that range from a two-year growth perspective. People should aim to see FMC delivering in that 5% to 7% range and 7% to 9% for EBITDA heading into next year. While I can't provide an exact figure, our long-term plan through 2023 is on schedule, which should be the way to view it.

Oh yes, thank you. Good morning, everyone. I just wanted to size the pricing versus a tax opportunity into next year. From your 2020 bridge, it looks like you're under recovering about $100 million of EBITDA. Is that roughly equivalent to what you expect to catch up next year?

Difficult to say at this point Aleksey. We are certainly working with Latin America, Asia to look at where we're going to be on pricing. We haven't built that model out yet. But you're right we have recovered about 55%. We got about $100 million of pricing to go. It all depends on what happens to FX, does FX stay where it is given where the election is, does the dollar strengthen or weaken after the election, all those things come into play. So, I think it's a little early to say there is a $100 million tailwind in pricing going into next year.

Hi, good morning. Mark, you and your team have been engaging with investors more on ESG the last few months. Maybe you can share some of the feedback you've heard, maybe some of the changes you might make and things you might do or your outlook or your strategy from these conversations externally and internally? Thanks.

Thanks, Joel. Yeah listen, it's a subject that is very close to my heart. I passionately believe in sustainability and a company like ours where the marketplace that we operate in, I think there are tremendous opportunities for us to position FMC as a sustainable company and a leader in this space. You will have seen we made an announcement in October. We've now put in place a chief sustainability officer. We are restructuring parts of the company to put that under our sustainability office. For me, it ties so closely into the technology platform that we have, and we'll talk about that in two weeks' time at the Technology Investor Day. I think the feedback we're getting is there is an appetite and a discussion around the types of chemistries that get used, the latest technologies, the more targeted technologies that are softer in chemistry. The biological approach to crop protection is also gaining a lot of traction and the combination of the two types of chemistries together. And then there is the whole carbon footprint of companies that come into play, how we think about our waste and our utilities, they're all part of managing the company and with the expectations of the various stakeholders that we have. So I do see it as an important aspect. You will see more from us. We're putting out some pretty ambitious goals for sustainability for the company that we will be reporting on regularly. So more to come from this area.

Yeah, good morning. Fairly straightforward one and sorry if you have touched on this already. But, there's been some incremental costs associated with these disruptions from COVID supply chain expediting getting, I guess, your product closer to your customers, ahead of time to maybe even some working capital drag. So, I'm just wondering if you see that normalizing into the 2021 season and if so what kind of opportunity from either a cost-saving standpoint year-over-year or squeeze a little cash out of working capital? Thanks.

Yes, we have experienced an impact on costs. Earlier this year, we mentioned it was around $20 million. I don't anticipate that changing in the short term. Given the current situation in Europe with a second wave, we've been proactive by moving materials to local warehouses across Europe instead of using a centralized warehousing model. We understand that the landscape in Europe is shifting, and we are actively placing products in locations where they will be most needed, which does involve additional costs. This cost has been accounted for this year, and I expect it to carry over. I believe that Q1 will look very much like Q4. If we see an increase in demand elsewhere, we will similarly adjust our logistics and product movements. We are at the forefront and have learned a lot in the past few years, which we are now implementing, but it does come with extra expenses.

Thanks for all the questions. I'd like to remind you about our Investor Technology Update Call on November 17th to provide an update on our R&D pipeline. That's all the time we have for the call today. Thank you, and have a good day.